Pricing Research In An Evolving Tariff Environment
A recent Wall Street Journal article noted that “Major U.S. CEOs warn that constantly changing tariffs is spooking consumers and making business planning virtually impossible” and “several companies considered raising prices” in light of the tariffs.
How do you establish a pricing strategy in this environment?
While several options exist for brands (e.g., absorbing costs vs. raising prices), the bottom-line impact is not easily predicted, and a wrong move can have severe consequences. Pricing research becomes a valuable tool for insights/product teams to understand potential consumer reactions to differing strategic directions.
Several methods exist for evaluating the impact of pricing. Given the complexity of the current tariff situation and the range of directions that brands could take to combat the impact, Discrete Choice Modeling is an excellent approach. This is among the more sophisticated pricing research approaches and allows researchers to isolate the impact of individual variables on consumer choice.
A well-designed discrete choice study can evaluate the impact of several factors on purchase consideration and/or market share:
- Price Increases or Decreases: The impact of changing the price of your current product offering(s) in its current state
- Competitive Action: Measuring the impact of a competitor’s price increase or reduction, product changes, or new product introduction
- Discounts or Bulk/Multi-Pack Pricing: Determining if demand and the bottom line is positively or negatively impacted by multi-pack offerings, discounts, coupons, or loyalty programs
- Product Size Change: Whether purchase behavior differs if the current product size is reduced or increased
- Product Modifications/Line Extension: Determining whether the addition of new products that may be of lesser quality (e.g., “good/better/best” offerings) is a viable strategy
- Material Change: Evaluating the impact of modifying the materials currently used in products or packaging (e.g., changing an aluminum can to a glass bottle)
A key deliverable in this type of research is a market simulator. This tool allows insights and product teams to play extensive “what if” games to evaluate the market impact of one or more of the above variables changing on a category product. The simulator has an added long-term benefit – if a competitor changes a product offering(s) or pricing at a later time, researchers have a tool on hand to tell them what may happen based on this market change.
Pricing strategy is complicated even in “normal” times. Having tools at your disposal that inform major decisions during economic uncertainty is critical. Pricing research is one way to ensure the organizational direction is grounded in sound consumer data.
Please contact us if you’d like to learn more about how your organization can conduct research to inform pricing strategy.
